5 More things investors want to know in a business plan

This is part 2 of a two-part article. Part one is titled: 5 things Investors want to see in a Business Plan.

6.)  Is the exit plan well defined?

Unless your lender is going to get involved with you through a joint-venture, or partner, chances are he or she does not want to stick around with you forever.  Investors want to know what you're offering them later on down the road, when it's time to cut you loose and count the money you made for them. Some examples of exit plans include:

a.)  Creating an initial public offering (IPO).  If your business has the possibility of going onto the stock exchange later on, and investors can share in dividends, this is very important for them to know from reading your proposal.  Let them know how long it will take to get an IPO, and estimate the price per share you foresee, if you're offering investors a first-buy once the IPO goes public, etc. 

b.)  Buyout.  Perhaps your shoes-string business is going so well, your investor is impressed enough to want to buy your company completely for several million dollars.  If you want to offer this alternative to long-term investing, make sure you let the investor know the approximate value of the company after a certain number of years.  A business valuation report is very helpful in this regard.  Let the investor know exactly what he or she might be getting into and if it's really worth pursuing. If you can do a valuation of the company based upon your projections, it may assist the investor in determining if you are worth the time and effort to invest.

c.)  Sell the company to others.  If your business has the possibility of going up for sale to other interested parties, the investor should know details such as possible buyers, how much they could pay, the value of the business at the point of sale, etc.

d.)  Pay out of equity.  Let's say Steve wants equity in George's company and receives 20%.  Steve loans George the initial funding and an agreement is made that Steve will own this equity for 10 years.  Each year, George will pay Steve 20% of the gross profits.  At the end of ten years, if any money is still owed on the loan, which is doubtful, George will pay the equity of 20% and a balloon payment of anything that remains on the loan.  All this, of course, must be agreed upon at the outset, so make sure you define this clearly.

7.)  How much money do you need and how will it be used?

As weird as it sounds, we have had business proposals come past our desks that explain how much money is needed -- but fail to tell us what it's being used for.  An investor will balk at someone who says they need $100 million for an oil well project yet doesn't explain where all this money is going.  Our business proposals include a special heading for Start-up expenses (when dealing with a start-up company, of course), that explains and lists the expenses the investment will cover, and for how long.

If you want to really impress investors, include what we call a "phase plan".  For example, let's say you want to start that oil well project.  In Phase One, you show the investor what you'll be spending, in this case, for surveys of the land, preparations for drilling, etc.  Phase Two could show expenses for drilling equipment, personnel, and construction of the wells.  Phase Three could discuss refining procedures expenditures, and so on.  You have detailed out a full "shopping list" for the investor, and they not only know what you're spending, but how it's being spent, and an estimated time when it will be spent.

8.)  How will the money be paid back?

On the heels of exit plans, an investor likes to know how you're going to pay him or her back.  If you can agree on a certain percentage each month, or each year, that is fine.  If you want to offer annual equity and a share of profits, that's great too.  But whatever your options are, make sure the investor knows what you're offering.  Detail out all the pay-back options that are available, and order them in importance to you.  You might want to think twice if your business has the ability to make $50 million per year, and your investor only gave you $5 million at the beginning, yet you offer a 35% equity every year!  Reward your investors, yes, but don't shower them with untold riches for nothing.  A happy investor is always good, but make sure you're happy too so that your business continues to prosper.

9.)  What is the SWOT like?

SWOT stands for Strengths, Weaknesses, Opportunities and Threats -- and if you do not know these, you have no business, well, running a business.  Your proposal should describe each of these areas accurately and with great detail, at least a few paragraphs for each.

Strengths:  What really makes your business stand out?  Where does it excel?
Weaknesses:  Where does your business need help?  Where is it lacking?
Opportunities:  What positive trends, actions or events do you see that will have a profound and positive effect on your company's success?
Threats:  What negative trends, actions or events could cause harm to your business -- and how will you sail past those rough waters smoothly?

10.)  How relevant is the business to our society?

A lot of people will try to tell you that investors really don't care about this factor, but from our experiences you would not believe the amount of investment firm applications we have seen that ask this exact question.  How your business impacts society, whether locally, nationally or world-wide, can have a positive or negative impact on investor interest.  If you have a business proposal that offers 4,000 jobs to your city, or will strengthen economical development, or includes environmentally-friendly factors or some sort, your proposal looks that much better.  Try to take the time when writing to think about how your project affects others around you.  What are the benefits?  The long-term effects?  The opportunities for others?  Every business has the ability to impact society in some way.  Informing an investor in detail about how your particular project will do so, tells an investor that you care enough about your project to do the extra research, go the extra mile -- and it shows a great deal of determination and heart.

And every investor loves that!